Sanisha Packirisamy, Economist at Momentum Investments

• Consumer price inflation (CPI), according to Statistics South Africa (Stats SA), dropped to 5.1% year-on-year (y/y) in June 2024 from 5.2% y/y in May. Core inflation eased to 4.5% y/y from 4.6% y/y over the same period.

• On a quarterly basis, headline inflation averaged 5.2% in the second quarter of 2024, slightly above the SA Reserve Bank’s (SARB) projection but the average of core inflation (4.6%) matched the SARB’s projection.

• Rental inflation eased more than anticipated in June. In particular, owners’ equivalent rent (accounting for nearly 13% of the inflation basket) dipped to 2.8% y/y in June from 3.3% y/y in May.

• Following an uptick to 6.3% y/y in May, transport inflation decelerated to 5.5% y/y in June. This was largely due to lower fuel inflation given notable fuel price cuts (more than R1/l) in June. The price of petrol (ULP 95) decreased by a further R0.99/l in July, which will exert downward inflationary pressure. The SARB expects transport inflation to dive into deflation in the fourth quarter of 2024, which will help bring down headline inflation to the mid-point of the inflation target range (4.5%) faster.

• As at 22 July, the Central Energy Fund’s (CEF) estimated over-recovery points to marginal potential fuel price cuts in August. This is due to rand strength which is countering higher international oil prices.

• Food and non-alcoholic beverages (NAB) inflation was lower at 4.6% y/y in June after registering at 4.7% y/y for two consecutive months. The SARB’s expected trajectory for food inflation has improved with the expected impact from El Niño being lower than previously anticipated.

• The lower El Niño impact on food prices corresponds with the latest forecast for summer crops published by the Crop Estimates Committee (CEC). The fifth estimate of commercial summer crops in 2024 has been the highest, registering at 16.04 million tonnes since the forecast was slashed from 17.4 million tonnes in February.

• In its July 2024 Crop Prospects and Food Situation report, the Food and Agriculture Organisation (FAO) indicated that SA’s excess maize will not be sufficient to cover demand from Southern African countries that were disproportionately affected by El Niño.

• In the Opening of Parliament Address, the President announced that the Government of National Unity (GNU) will look to expand the current list of 19 food items exempt from Value-Added Tax (VAT) and undertake a comprehensive review of administered prices, including the fuel price formula, to alleviate price pressures for consumers.

• Following June’s inflation print, our projected pace and magnitude of interest rate cuts remain intact with one 25-basis point cut in September followed by another 25-basis point cut in November. Thereafter, we pencil in two 25-basis point cuts in the first half of 2025.

ENDS